An major inquiry into Australia’s banking and financial services industry has found significant problems in the way the country’s consumers are being looked after in a number of areas, a draft report issued today reveals.
In it 600-page Competition in the Australian Financial System, Draft Report, the Productivity Commission criticises a number of measures that have been introduced recently to help consumers, such as regulations aimed at cooling the over-heated housing markets in Sydney and Melbourne, which apparently had the unintended effect of providing a windfall for the banking sector.
But its main finding is that consumers could be better served than they are by the industry.
Market stakeholders are being invited to comment on the draft report’s findings by 20 March, with a final version of the document scheduled to be handed to the Australian government by 1 July. Public hearings aimed at soliciting input from the market are scheduled to be held in Sydney and Melbourne over the next four weeks.
In a 55-page summary of the report’s findings, the commission notes that Australia’s financial system is, as has long been known, dominated by large players, with four major banks dominating the retail banking sector, four major insurers in control of the general insurance market, “and some of these same institutions [featuring] prominently in funds and wealth management” as well.
“A tail of smaller providers operate alongside these institutions, varying by market in length and strength.
“The combined market shares of major players in banking and insurance are well over 70% in some product lines.”
Internationally, the report notes, Australia’s banking concentration “is on par with that of Canada and the Netherlands, but well above that of the United Kingdom, United States and Japan”.
And while these large market shares do not necessarily indicate that competition is weak or that community outcomes will be poor, the report continues, the market needs “regulatory settings that do not thwart competition between existing institutions; more customer-oriented providers that consider their existing customers (not just potential new customers); less of a blizzard of new but barely-distinguishable products with labels that obfuscate; much better and far more open information on product prices and conditions; and scope for consumers to more easily become unstuck (should they wish to be) from their current banks and insurers.”
The inquiry that led to the report released today followed a political debate over the quality of the financial services offering last year, and comes after the introduction of a package of sweeping reforms of the Australian financial services industry beginning in 2013, known as the Future of Financial Advice.
Next week a royal commission into the Australian financial services sector is set to begin.
To read and download the report, click here.